Incentives and Rewards

Why do some employees work harder than others? This question is admittedly simple but important. Most of us, at some time, have worked with people who did not work as hard as their abilities would indicate they could. Managers face this problem very often. What should they do? After all, as a manager, much of your personal success or failure, not to mention that of your company, rests on the performance of your employees.

Other than knowing what to do, the ultimate purpose of incentives is to motivate - to motivate employees to work as hard as possible to reach certain goals by rewarding them when they do what is desired. Managers face a host of decisions that affect their incentive plans. Reinforcement theory, goal setting, expectancy theory, and agency theory will help you understand how different incentive plans affect employees’ attitudes and behaviors.

According to reinforcement theory, when people experience positive consequences after they do something, they are likely to repeat those actions. This, of course, includes employees when they are rewarded under a company’s incentive plan for what they do. In short, reinforcement theory suggests that individuals are more likely to repeat certain behaviors when they are rewarded for them than when they are not.

A second theory regarding why incentives may prove to be motivating is goal setting theory. When employees are committed to specific, challenging, but attainable goals, the goals serve as an anchor to focus their efforts on as well as for the amount of effort needed. By setting challenging goals rather than simple goals, employees are encouraged to push themselves to achieve their objectives. And when individuals have specific goals rather than vague goals, they have a clear sense of the objective they are trying to realize and are more likely to focus their efforts toward that goal than other irrelevant or less relevant activities.

Another useful theory regarding the potential motivating impact of incentives is expectancy theory. According to expectancy theory, employees make decisions regarding how to act at work based on which behaviors they believe will lead to their most valued work-related rewards and outcomes. When properly designed and implemented, incentive systems reward employees and managers for acting in the best interests of a company’s owners.